HMRC Failure To demand 16/17 CGT & Income Tax?

16/17 online SATR received by HMRC but not Processed. What are my/client's rights/obligations now?

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I submitted client's 2016/17 Self Assessment Tax Return online and on time on 29.1.18. HMRC online services show TR as being received 29.1.18. So far, so good.

In rough amounts, the 2016/17 Tax Return disclosed an income tax liability of £1,000 and CGT liability of £10,000. Having checked HMRC online services today, client's records are showing a whopping tax overpayment of around £8,500, being the difference between the 2016/17 tax liability paid and the 2016/17 interim instalments (based on the 2015/16 income tax liability).

So what do I do about the £8,500 overpayment sitting on the HMRC SA account. Although the HMRC computer acknowledges receipt of the Tax Return, it has failed to process the 2016/17 income tax and CGT liability.

What obligations do client and I have in respect of drawing HMRC's attention to their failure.

Is the overpayment legally refundable at some point in the future if HMRC continue in their failure to process the 2016/17 Tax Return they are clearly in possession of.

My view is "honesty is the best policy", so do I have a legal obligation to tell HMRC that their computer or other system is not working.

As far as I am concerned, client has done everything correctly they should have legally done.

Replies (18)

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By Martin B
08th Jan 2019 17:48

You as an agent have an obligation to make sure the client gets it right. You should call HMRC and notify them so that they can correct.
If the client does not want you to notify HMRC , then you need to stand down as agent

Thanks (1)
By frankfx
08th Jan 2019 20:09

This is not an uncommon problem.

Are you a qualified accountant?

namely HMRC make a mistake in client's favour.

agents gave an obligation to notify HMRC of this.

Are you a qualified accountant?

You should be aware of

Code of practice CIOT and CCAB


2.4 A member must act **honestly ** in all his dealings with his clients, all tax authorities and other interested parties, and do nothing **knowingly** or carelessly that might mislead either by commission or ** omission**

One could dig deeper , but the above makes it clear .

Imagine HMRC picking up the error later.

You, as tax agent, are asked if your software and communications with client indicated a liability , if yes why didn't you inform HMRC of error.

The THEFT ACT 1968 , now superseded by FRAUD ACT, but the word THEFT commands attention,

para b well worth digesting

Basic definition of theft.
A person is guilty of theft if he **dishonestly **appropriates property belonging to another with the intention of permanently depriving the other of it; and “thief” and “steal” shall be construed accordingly.
It is immaterial whether the appropriation is made with a view to gain, or is made for the thief’s own benefit.
The five following sections of this Act shall have effect as regards the interpretation and operation of this section (and, except as otherwise provided by this Act, shall apply only for purposes of this section).
Modifications etc. (not altering text)
S. 1(1) applied (25.8.2000) by 2000 c. 6, ss. 148(8), 168
A person’s appropriation of property belonging to another is not to be regarded as dishonest—
if he appropriates the property in the belief that he has in law the right to deprive the other of it, on behalf of himself or of a third person; or
if he appropriates the property in the belief that he would have the other’s consent if the other knew of the appropriation and the circumstances of it; or
(except where the property came to him as trustee or personal representative) if he appropriates the property in the belief that the person to whom the property belongs cannot be discovered by taking reasonable steps.
A person’s appropriation of property belonging to another may be dishonest notwithstanding that he is willing to pay for the property.

By the way the same considerations apply if you receive goods or services from a supplier.

they invoice you

send statements

which remain unpaid

then go quiet

then you decide to write off in your accounting records.

what is your judgement call?

integrity and honesty are fundamental character and business traits.

Thanks (1)
Replying to frankfx:
By penelope pitstop
08th Jan 2019 22:14

Thanks for that comprehensive response.
Will get on to HMRC ASAP.

Thanks (0)
Replying to frankfx:
By SteveHa
09th Jan 2019 08:19

frankfx wrote:

Are you a qualified accountant?


Thanks (0)
By frankfx
08th Jan 2019 20:41

reply 2 ENGAGMENT letter extract , makes it clear that HMRC must be informed

'' We will observe and act in accordance with the bye-laws, regulations and ***ethical guidelines ***of the ICAEW and will accept instructions to act for you on this basis.

In particular you give us the authority to ** correct errors made by HMRC ** where we become aware of them. ( this will be in this case)

We will not be liable for any loss, damage or cost arising from our compliance with statutory or regulatory obligations. ………………''

Your own EL , if you issue engagement letters, and have read it will undoubtedly include similar wording.

In the past I have had to refer clients to my EL, and indeed the CIOT Ethics code of practice. This assures the client that I am not an ''outlier'' spoiling their enjoyment of a momentary windfall !

Thanks (1)
Replying to frankfx:
By penelope pitstop
08th Jan 2019 22:15

Thanks for that response.

Thanks (0)
By Paul D Utherone
08th Jan 2019 21:47

Was there by any chance a Marriage Allowance transfer in the year? That seems to stop returns processing (still) for some reason.

As to your main question, the return is submitted and the tax is due (and paid). Just tell HMRC to find the return and get it processed properly.

If they ever repaid in error then you should be telling the client that the tax is due, should not have been repaid, and the payable order returned uncashed, or if repaid by bank transfer that they should be paying it back to HMRC ASAP with a note pointing out HMRC's error

Thanks (1)
Replying to Paul D Utherone:
By penelope pitstop
08th Jan 2019 22:13

Yes. There was a marriage allowance transfer, so that probably explains the matter.

Thanks (0)
By Chris.Mann
08th Jan 2019 22:17

In all of this, let’s not overlook where the shortcoming lies?
HMRC’s systems, in this case, and others, are found to be unfit for purpose.
This is where the line is crossed, between the public and private sector, the latter usually picking up the actual cost, of the remedy

Thanks (1)
Replying to Chris.Mann:
By penelope pitstop
08th Jan 2019 22:29

Good point.
The CGT liability could have easily been, say, £100,000 or even more.
So HMRC may be failing to collect large swathes of tax in some cases - interesting!

Thanks (0)
Replying to penelope pitstop:
By Chris.Mann
09th Jan 2019 06:39

I’ve just resolved a case, where HMRC had repaid my client, more than £7,000. His correct entitlement was ££350!
Although I have spent considerable additional time, to effectively recover losses to the Crown, I am now embroiled in a “discussion” as to whether my reasonable additional charges will be reimbursed to my client!
In my last two complaint cases, I’ve directly referred them to (Sir) Jon Thompson’s office.
This is (another) Government agency which is generally unfit for purpose.

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Replying to Chris.Mann:
By penelope pitstop
09th Jan 2019 14:17

Thanks for that information. All very helpful.

Thanks (0)
By bernard michael
09th Jan 2019 09:51

Tax due is tax due and payable

Thanks (1)
Replying to bernard michael:
By penelope pitstop
09th Jan 2019 14:23

That is something the HMRC computer needs to learn!
2016/17 Tax Calculation Summary Page TC 1
box 1 = Total tax due £11,000
box 5 = CGT due £10,000
So why is the HMRC computer not raising tax charges for these amounts.
Not exactly rocket science!

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Replying to penelope pitstop:
By penelope pitstop
09th Jan 2019 14:26

And the £11,000 tax has been paid!
What has not been done is me telling HMRC that their computer does not work.

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By Chris.Mann
09th Jan 2019 12:19

Just to add, to this scenario, I think you'll find that; penalties and interest will also be initially applied, once you've untangled the HMRC error.
Obviously, you'll need to appeal the penalty and seek redress for the interest.
From what I can see here, HMRC are fortunate that you represent this particular taxpayer. Imagine the situation where the individual wasn't represented.
As I said, at the outset, this is a simple case of the chasm between the public and private sector, the latter being the sector which picks up the true cost.

Thanks (1)